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Understanding a Ponzi scheme

Arizona residents may frequently hear Ponzi schemes discussed when they hear about white collar crime. They may wonder just what kind of crime this refers to, though. The U.S. Securities and Exchange Commission says that Ponzi schemes fall under fraud.

Fraud comes in many forms but a Ponzi scheme specifically affects investments. Someone running a Ponzi scheme typically guarantees that people will receive high returns from their investment. The money is usually not invested, though. Instead, it is used to pay earlier investors.

There are a few signs that indicate someone is about to invest in a Ponzi scheme. People may not always receive payments from their investments. When they try to remove their money, the person running the scheme may promise them more money if they stay with the fraudulent investment. In other situations, people may receive the same return, even as the market changes. Additionally, people should generally avoid investing if a firm is not licensed, as this can be a sign that the company is fraudulent.

Organizing a Ponzi scheme is illegal under Arizona law. According to FindLaw, this type of fraud can be considered either a misdemeanor or a felony,  depending on the extent of the scheme. People who are convicted of running a Ponzi scheme may be required to pay a fine or spend time in jail. Sometimes they may also need to perform community service and go through probation. In some situations, a person may lose his or her business license and need to pay restitution to the people who invested in the scheme.

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